Arbitration Yearbook Italy

By: Gianfranco Di Garbo1 and Luca Pescatore2

A. Legislation, Trends and Tendencies

A.1 Swapping to Arbitration During a Pending Ordinary Proceeding

Law n. 162 of 10 November 2014 introduced urgent measures aimed at alleviating the ordinary jurisdiction’s backlog. This law, called the Unblocking Italy Decree (Decreto sblocca Italia), had the specific purposes of speeding up the settlement of disputes and removing disputes from the ordinary courts (tribunals and courts of appeal) to arbitration panels.

Under the law, parties to an ordinary proceeding may devolve to arbitration disputes relating to civil proceedings, provided that they involve “disposable” rights (i.e., rights that can be assigned and waived), with the exception of: (i) disputes concerning labor or social security issues (save for disputes arising from collective labor agreements incorporating arbitration clauses); and (ii) disputes involving a private party and the public administration, unless they concern tort liability or payments whose value is lower than EUR50,000 and the public administration does not expressly disagree with the party request to devolve the controversy to arbitration.

Upon the request of the parties, disputes up to a value of EUR100,000 are to be resolved by a sole arbitrator, while those with a value of EUR100,000 or more will be dealt with by an arbitration panel. The arbitrators are to be appointed by the parties or by the president of the local bar association from among attorneys who have been registered at that bar for at least five years and who, prior to the assignment of the case to the bar association, have declared themselves available to be appointed as arbitrators.

The main features of arbitrations instituted under this law are that the proceedings will resume before the arbitrators at the same stage they had reached before the ordinary court and that the award rendered by the arbitrators will have the same validity as that of an ordinary judgment.

This law has been highly criticized because it does not introduce any supplemental incentive to the parties to expedite ordinary pending cases. Indeed, even before the enactment of the law, the parties could decide to devolve any pending dispute to arbitration under Article 807 of the Italian Code of Civil Procedure, through the execution of a written agreement (compromesso). The law has been also criticized because it gives the power to appoint the arbitrators in the case of disagreement between the parties only to the president of the bar association.

A.2 Assisted Negotiation

The same law has introduced into the Italian jurisdiction an ADR mechanism known as assisted negotiation (“Negoziazione Assistita”). According to this procedure, the parties enter into an agreement undertaking to cooperate in good faith in order to settle the dispute with the assistance of their lawyers. The settlement reached in this way will be endowed with the same legal force as a court judgment.

Negoziazione Assistita is mandatory with regard to disputes related to compensation for damages arising from road accidents, as well as any dispute aimed at obtaining payment of amounts up to EUR50,000. However, summary collection proceedings are still possible without resorting to this mechanism. Since the nature of formal arbitration is deemed equivalent to the process of ordinary courts, it can be argued that Negoziazione Assistita is also applicable to disputes submitted to arbitration.

B. Cases

B.1 Nullity of Award for Lapse of Term

Under Article 821 of the Code of Civil procedure, any award issued after the term specified by the parties is void if the party, before the delivery of the award, has notified the other party of its intention to avail itself of the lapse of time. The Supreme Court (by its judgment of 19 January 2015 n. 744) ruled that in such a case, the Court of Appeal before which the award is challenged may nevertheless proceed with the examination of the merits of the controversy and decide on it.

B.2 The Definition of “Public Policy”

With Decision No. 2184/2015 of 20 May 2015, the Court of Appeal of Milan ruled that an arbitrator’s decision to award damages to the claimant on the grounds of the defendant’s bad faith performance of the contract was not contrary to any public policy principle. The importance of the decision lies in the fact that the Court of Appeal referred to EU Directive 2006/123/CE, Article 41 to incorporate in its judgment the definition of “public policy” set forth in that directive, under which “the concept of ‘public policy,’ as interpreted by the Court of Justice, covers the protection against a genuine and sufficiently serious threat affecting one of the fundamental interests of society and may include, in particular, issues relating to human dignity, the protection of minors and vulnerable adults and animal welfare. Similarly, the concept of public security includes issues of public safety.”

B.3 The LCIA Arbitration Clause and Italian Jurisdiction

With Decision No. 10800 of 14 April 2015, the Court of Cassation recognized the validity of an arbitration clause demanding the decision of a controversy under the rules of the LCIA. After recognizing the nature of formal arbitration in any foreign arbitration procedure (including that of the LCIA), the court confirmed its jurisprudence that the question of the validity of an arbitration clause has to be considered a “jurisdiction” issue, rather than a “competence” or “merit” issue. The case was begun by an Italian company in bankruptcy, and the court stated that an arbitration clause can be utilized even when the claimant is subject to a bankruptcy procedure, unless the arbitration proceeding is already pending at the time of the bankruptcy declaration and the receiver in bankruptcy decides to withdraw from the contract governed by the arbitration clause.

C. Costs in International Arbitration

C.1 Allocation of Costs

As a general rule, arbitrators in ad hoc procedures (i.e., when the arbitration is not governed by the regulations of a private arbitration chambers, but only by the Code of Civil Procedure) will determine in the award their own fees, as well as reasonable attorney fees and other costs.

Although a binding rule has not been established, arbitration tribunals tend to allocate costs according to provisions set out in the Italian civil procedure code (CPC). As a result, the provision set forth in Article 91 of the CPC is frequently adopted and, consequently, the successful party is entitled to costs recovery.

However, although according to Article 92 of CPC (as amended by the Law Decree of 12 September 2014 n. 132), only under exceptional circumstances are costs set off among the parties, in arbitration proceedings, it is very common for arbitrators to order that each party bears its own cost, or that only a limited portion of the costs of the winning party are borne by the losing party.

All the parties to the arbitration are jointly and severally liable to pay the arbitrators’ fees, but each party has recourse against the other according to the allocation made in the award (if any). Up to 2012, arbitrators’ costs were determined according to an official tariff that has been abolished by Law Decree n. 1/2012, converted into Law n. 27/2012. Arbitrators now have to agree their fees with the parties. Failing such an agreement or failing a voluntary payment of the fees determined by the arbitrators, under Article 814 of the CPC, the parties (or the arbitrators) must apply to the competent (ordinary) tribunal to determine the fees based on guidelines included in Law Decree n. 55/2014 and to make the relevant sums enforceable. This provision by the president of the Tribunal may be challenged before the Court of Appeal.

Arbitration case law shows that in the case of improper conduct or bad faith in addressing the tribunal, the party that is guilty of such misconduct may be ordered to pay to the counterparty both damages and an amount equitably fixed by the tribunal, although the sums granted by the tribunals for this purpose are rarely substantial.

C.2 Security for Costs

There are no provisions for security for costs in Italian procedural law. However, under article 816-septies of CPC, arbitral tribunals have the right to make the progress of the proceedings conditional on the downpayment of panel fees and costs. If a party does not pay its own portion of the fees, the other party can pay the entire amount. If no party makes the payment within the term allowed by the arbitrators, the parties will no longer be bound by the arbitration clause with regard to the specific case submitted to the panel.

C.3 Recovery of Costs

In general terms, out-of-pocket costs connected with an arbitration procedure are recoverable by the winning party, subject to the decision of the arbitration panel. Both arbitrators and state courts do not consider outside counsel’s time charges to be recoverable. Legal counsel’s fees are reimbursed according to the official guidelines set forth by Law Decree n. 55/2014.

On a few occasions, tribunals have found costs relating to expert witnesses to be reasonable when strictly necessary to the preparation of a party’s case (for example, when the panel has appointed an ex officio expert witness); as a result, costs allocation in these cases took into account disbursements for expert witnesses, provided that related invoices had been submitted and relevant amounts were also reasonable.

  1. Gianfranco Di Garbo is a partner in Baker McKenzie’s Milan office and is the chair of the Italian Dispute Resolution Practice Group. He regularly represents clients in international and domestic arbitration proceedings as a party-counsel and as an arbitrator.
  2. Luca Pescatore is a counsel working in the Rome Dispute Resolution Practice of Baker & McKenzie. His practice focuses on commercial litigation, including arbitration.